Review: How economics became the hijacked science

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The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There’s no lack of books on the shortcomings of mainstream economics. “Economists and the Powerful”, by Norbert Haering, a German financial journalist, and Niall Douglas, an Irish IT consultant, stands out from the crowd.

The authors do not only describe the dismal science’s many flaws; they try to explain why the discipline went wrong. Their claim is that the field has become the ideological servant of vested interests: “a tool for the powerful to enrich themselves at the expense of others” and a “weapon for achieving U.S. hegemony at the cost of everything else”.

The authors back up this bold claim with a number of examples. They trace how wealthy donors streamlined the research agenda of American universities, crowding out redistribution-friendly theories and other topics deemed “socialist”. Subtle financial pressure nurtured a scientific mainstream “strongly biased in favour of negative viewpoints regarding issues like creating quality of opportunity or the role of government and society versus the individual.”

According to Haering and Douglas, the RAND Corporation, a privately financed American think-tank, played a pivotal role. Using funds provided by the Ford Foundation, RAND funded research projects of subsequent Nobel laureates Kenneth Arrow and James Buchanan, who persuasively questioned the legitimacy and efficiency of collective decision-making.

The authors assert that RAND “had a big role in de-emphasising empirical real-world oriented research in favour of axiomatic, mathematical deduction”. This approach has heavily influenced modern day economists’ distrust of governments – and their policy advice.

Haering and Douglas also argue the measures of economic success are biased. A meticulous investigation into the way the United States calculates its Gross Domestic Product shows that the official measure is overstated. A notable example is the biased estimate of quality improvements, which lowers reported inflation rates and increases real GDP. The book cites academic research estimating that this “quality inflation” explains about 20 percent of the reported gap between American and European productivity.

Some sections of “Economics and the Powerful” are less convincing. The authors occasionally flirt with wild conspiracy theories, claiming for instance that the influence of “the powerful” has been so comprehensive that is has become invisible: “Most of the bright and successful mainstream economists who are honestly convinced that their approach is the right one will never realize that their success is aided by a very uneven playing field.”

The excesses are regrettable, because they undercut a strong and thought-provoking thesis. “Economists and the Powerful” is a helpful reminder of the power of economic factors. Even economists can be under their influence.